Why in the news?
The Centre has notified the Central Excise Amendment Act 2025 along with related tax changes on tobacco products. The changes will come into force from February 1, 2026. The move ends the GST compensation cess on tobacco and revises excise duties to meet fiscal and public health goals.
Central Excise Amendment Act 2025
The Act amends the Central Excise Act 1944 to revise excise duties on tobacco and tobacco related products, which continue to remain outside the complete GST framework.
Key features
Revision of excise duties
The Act revises central excise rates to maintain and increase the overall tax burden after the withdrawal of GST compensation cess.
Revised excise duty rates
- Unmanufactured tobacco increased from 64 percent to 70 percent
- Chewing tobacco increased from 25 percent to 100 percent
- Hookah and gudaku tobacco increased from 25 percent to 40 percent
- Smoking mixtures for pipes and cigarettes increased from 60 percent to 325 percent
- Cigarettes increased from ₹200 to ₹735 per thousand sticks to ₹2,700 to ₹11,000 per thousand sticks
Public health objective
The higher duties aim to raise real tobacco prices faster than income growth, in line with global public health recommendations to discourage consumption.
GST restructuring on tobacco
- Beedis placed under 18 percent GST
- All other tobacco products placed under 40 percent GST
- New valuation mechanism introduced
GST value to be calculated on the retail sale price declared on the package for products such as chewing tobacco, gutkha, khaini and jarda
GST compensation cess
What it is
An additional levy imposed on select goods to compensate States for revenue losses due to GST implementation.
Key points
- Introduced in July 2017 along with GST
- Initially meant for five years till June 2022
- Extended till March 31, 2026 due to pandemic related revenue shortfall
- Used mainly to repay about ₹2.7 lakh crore borrowed to compensate States
- Levied over and above GST and central excise on tobacco
- Being completely phased out from February 1, 2026
Items covered under the cess
- Tobacco and tobacco products
- Pan masala
- Aerated and caffeinated drinks
- Luxury cars
- Motorcycles above 350 cc
- Specified firearms
Prelims pointers
- Tobacco products remain partly outside the GST framework
- Central excise continues on tobacco even after GST
- GST compensation cess ends from February 1, 2026
- Higher tobacco taxation serves both revenue and public health objectives
| [2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?
1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.
Select the correct answer using the code given below:
(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 |
